Overview
For the Financial Year 2025–26 (Assessment Year 2026–27), understanding the “tax-free limit” is more important than ever for Indian taxpayers. With the New Tax Regime now the default, the government has significantly raised the threshold for zero tax liability.
Individuals can earn up to ₹12 lakh without paying any income tax under the new regime or even ₹12.75 lakh for salaried employees, thanks to an enhanced rebate under Section 87A. However, the older, traditional regime still exists, offering a basic exemption of just ₹2.5 lakh but allowing various deductions. This guide breaks down both regimes to help you determine which one lets you legally earn more while paying zero tax when filing your ITR for AY 2026–27.
New Tax Regime (Default)
The new tax regime continues to be the preferred choice for many, thanks to its higher rebate limits.
Effective Tax-Free Limit
Up to ₹12,00,000 (for resident individuals).
How it works?
Although the basic exemption limit is ₹4,00,000, a tax rebate under Section 87A (up to ₹60,000) effectively eliminates the tax liability for total taxable income up to ₹12 lakh.
Salaried Employees
The effective limit rises to ₹12,75,000 after factoring in the Standard Deduction of ₹75,000.
| Income Range (₹) | Tax Rate |
| Up to 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Old Tax Regime
The old regime continues to provide lower basic exemption limits but allows for various deductions (such as 80C, 80D, and HRA).
Effective Tax-Free Limit
Up to ₹5,00,000.
Basic Exemption Limits
- Individuals (<60 years): ₹2,50,000
- Senior Citizens (60–80 years): ₹3,00,000
- Super Senior Citizens (>80 years): ₹5,00,000
Standard Deduction
Salaried individuals can claim ₹50,000 under this regime.
| Income Range (₹) | Tax Rate |
| ₹0 – ₹2.5 lakh | 0% |
| ₹2.5 lakh – ₹5 lakh | 5% |
| ₹5 lakh – ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
Key Notes for ITR filing
- The new regime is the default; you must opt out only if you wish to claim deductions under the old regime (e.g., 80C, HRA).
- These updates stem from the Budget 2025/2026 enhancements aimed at providing middle-income relief.
- Always verify your specific situation on the Income Tax Department portal, as special incomes (such as capital gains) may not qualify for the rebate.
As an accounting professional familiar with compliance, consider using the new regime if your deductions are minimal for FY 2025-26 ITR.
Which Regime Should You Choose?
- Choose the New Regime if you have minimal investments in tax-saving schemes and prefer a simpler filing process.
- Choose the Old Regime if your total eligible deductions (80C, 80D, HRA, etc.) exceed ₹3.5 - ₹4 lakh. Only then can it potentially beat the ₹12 lakh tax-free benefit of the new regime.
New Vs Old Tax Regime Comparison
| Features | New Tax Regime | Old Tax Regime |
| Default | Yes | No |
| Effective Tax Free Limit | ₹12,00,000 | ₹5,00,000 |
| Basic Exemption limit | ₹4,00,000 | ₹2,50,000 (below 60 years) |
| Rebate (Section 87A) | Yes | No |
| Standard Deduction | ₹75,000 (salaried) | ₹50,000 (salaried) |
| Deductions | Limited | Various |
| Tax Rates | Progressive | Progressive |
| Salaried Employee Limit | ₹12,75,000 | ₹3,00,000 (with deductions) |
Important Notes
No Changes
The Union Budget 2026 (presented in Feb 2026) did not change these slabs or limits for this assessment year.
ITR Filing Deadline
For AY 2026-27, the due date for salaried individuals (ITR-1/ITR-2) is July 31, 2026. For businesses and professionals without audit requirements (ITR-3/ITR-4), the deadline is August 31, 2026.
FAQs
Under the new tax regime, what is the maximum income that attracts no tax liability?
Taxable income up to ₹12 lakh becomes effectively tax-free, thanks to a ₹60,000 rebate under Section 87A. The basic exemption limit under this regime is ₹4 lakh.
How do the basic exemption limits compare between the new and old regimes?
Under the new regime, the basic exemption limit is ₹4 lakh (raised from ₹3 lakh). Under the old regime, it is ₹2.5 lakh for individuals below 60 years,₹3 lakh for senior citizens (60–80 years), and ₹5 lakh for super senior citizens (above 80 years).
Is it mandatory to follow the new tax regime?
No, it is the default option. Salaried individuals can choose the old regime each year while filing their ITR. However, those with business income face restrictions on switching (they can opt out once and then return only once).
Are Non-Resident Indians (NRIs) eligible for the Section 87A rebate?
No, only resident individuals are entitled to claim this rebate.
How does the standard deduction impact the tax-free income ceiling for salaried employees?
With a ₹75,000 standard deduction available in the new regime, a gross salary of up to ₹12.75 lakh becomes effectively tax-free, since taxable income after the deduction remains at or below ₹12 lakh.
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